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Intellectual Property Insurance Overview

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© 2002, Gallagher & Dawsey Co., LPA
April 2002

Nowadays, virtually everything is insurable. Therefore, it should be no surprise that insurance can be purchased to protect intellectual property. Intellectual property insurance can cover any number of the many risks inherent in today's knowledge based economy. Insurance covering the risks associated with intellectual property is now affordable to businesses of all sizes and is as important as property and casualty insurance.

The number of intellectual property claims filed involving infringement of patent, trademark, and copyright rights, and their associated costs, have skyrocketed in the last decade. Recently, the American Intellectual Property Law Association indicated that the average cost to litigate a patent infringement suit is in excess of $1 million!

Historically, advertising policy riders to a company's general liability insurance coverage provided limited coverage for trademark, trade dress, and copyright infringement. This left companies exposed to claims based on patents and trade secrets. Today, most suits arising from intellectual property infringement are specifically excluded from general liability insurance policies.

To overcome the limitations of most modern policies, insurance companies have developed a wide range of intellectual property specific insurance, with an emphasis on patent infringement claims. Generally, there are three basic patent infringement policy types: Defense Only, Defense & Indemnity, and Offensive.

Defense Only policies usually cover only the cost to defend an infringement suit. They to not cover any damages that may be awarded. This type of coverage is best suited for companies with annual revenues in the range of $1/2 million to $25 million and have annual policy premiums in the range from $2,500 to $3,500.

Defense and Indemnity policies generally provide defense coverage in the event of a patent infringement suit AND will pay damages if liability is determined. These policies are generally designed for larger companies with annual revenues in excess of $50 million. Annual premiums for defense and indemnity policies can range between $3,000 and $20,000.

Offensive policies are designed to reimburse the insured for legal expenses associated with pursuing an infringing party. Offensive policies are written in standard limits that range from $100,000 to $500,000. A $100,000 policy will have an annual premium of approximately $1,000. An additional benefit of offensive policies is that companies often are more aggressive in pursuing potential infringers when covered by an offensive policy.

An endless variety of additional "riders" may be added to the basic intellectual property insurance policy. Such riders include coverage for loss of business income, loss of ongoing royalties and license fees, loss of R&D benefits, loss of IP portfolio value, loss of trade dress identity, loss of trade secret advantage, and cost of redesign.

Perhaps most importantly, intellectual property insurance can serve as the basis for including intellectual property on the balance sheet as an asset that can be valued at the insured value.

Intellectual property insurance is an excellent way to protect your business from the very real possibility of IP related lawsuits.
 
 
 

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